"The owners of J. Crew Group Inc. are in talks to sell the clothing retailer to Japan's Fast Retailing Co. for as much as $5 billion, a deal that would help the Asian company fulfill its ambition of becoming a global retailing powerhouse."

"Fast Retailing, which owns the Uniqlo apparel chain, approached J. Crew's management about potentially buying the private-equity-owned business, said people familiar with the matter. J. Crew is seeking upward of $5 billion for the business, one of the people said. It remained unclear whether Fast Retailing would pay that much and whether the two sides have yet discussed a price."

Takeaway: Fast Retailing has long been on the lookout for major US mall assets. One of the key players consistently in the running has been GPS. While that didn't sit too well with us, the reality is that others believed it. Fast Retailing is one of the few companies out there with a) the desire to own something as big as GPS, and b) the access to capital to get it done. Looks like that one is off the table for now (and for a very long time).

"There have been rumors and reports throughout the retail industry of security incidents at various retailers, and we are actively reviewing our systems to determine if we have been a victim of a breach. We have found no information based on our review of our systems to date indicating a breach."

Takeaway: Sears is so easy to pick on, but that doesn’t make it right to fabricate rumors about data security and integrity.

"Sam's Club is testing a new online service called 'My Subscriptions' which allows shoppers to have repeat-purchase items delivered to their homes automatically. The goal of the program is to save customers time by renewing their stash of household and personal care items on an ongoing cycle."

Takeaway: This is a tough one. On one hand, we see why Sam's is doing this, and it makes sense -- minimize the time between purchases of essential items. But on the flip side, the comp at warehouse clubs is driven not just by regular purchases of consumer staples, but by all the discretionary items that consumers buy that they didn't otherwise plan to buy -- simply because they see something interesting at a good price on the shelves. Simply put, they've got to get people in the stores. We were similarly perplexed when Wal-Mart started beta-testing its 'curbside pickup' program, where people order online and pickup at the front of the store. Again, WMT needs to boost traffic and therefore discretionary purchases.

"The Men's Wearhouse today confirmed that it entered into a non-disclosure agreement with Jos. A. Bank Clothiers on Saturday night, March 1, 2014, under which the companies have agreed to exchange certain confidential information and to work in good faith to evaluate a potential combination, and that Men's Wearhouse has received a draft merger agreement from Jos. A. Bank."

"Men's Wearhouse noted that its existing cash tender offer for $63.50 would provide Jos. A. Bank shareholders with a substantial premium and immediate value, and that as previously announced, Men's Wearhouse is prepared to increase its offer price to $65 per share if Jos. A. Bank can demonstrate or Men's Wearhouse can discover additional value through discussions or limited due diligence."

Takeaway: These two are finally sitting down to work out their marital problems. This thing has been such a circus side-show that our expectations are extraordinarily low for a resolution. But if we had to predict an the outcome with the greatest probability, we'd say MW takes out JOSB for $65. If all else fails, JOSB loses a third of its market cap.

"The CEO of the Big Apple-based Modell’s chain has been sued by big-box rival Dick’s Sporting Goods, which charges that Modell impersonated a Dick’s exec earlier this month as he spied on a store in Princeton, NJ."

"Modell...claimed to be a Dick’s senior vice president as he persuaded employees to give him access to the backroom of the store and grilled them about the business, the suit alleges."

"Modell told store workers he was scheduled to meet with Dick’s CEO Ed Stack at the store, and appeared to be particularly interested in a 'ship from store' program that delivers goods to customers’ homes from nearby locations, the suit said."

"Home Depot Inc.’s promotion of Craig Menear to president of its U.S. retail division is part of a succession plan for Chief Executive Officer Frank Blake, according to a person with knowledge of the situation."

"Menear, 56, is the leading candidate to become the next CEO of the largest U.S. home-improvement chain, said the person, who asked not to be named because the talks are private. There isn’t a timeline for the succession, the person said. Menear joined Home Depot in 1997 and served as executive vice president of merchandising before his promotion, the Atlanta-based company said yesterday in a statement."

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03/03/14 08:42 AM EST

MONDAY MORNING RISK MONITOR: UKRAINIAN MAELSTROM

Takeaway:While some of our key indicators are showing improvement, ongoing developments in the Ukraine support our call to stay on the sidelines.

Just when it was looking like it was safe to get back in the water. The Ukraine suddenly matters (a lot) to investors, with Europe off 2-3% and S&P 500 futures down ~20 handles. We've been, on the margin, arguing for a more defensive posturing in light of what had been rising interbank, systemic risk measures, rising commodity prices and falling yield spreads. The concerns were initially prompted by the EM fears that surfaced roughly a month ago. Since then we've been erring on the side of caution while the XLF has grinded a few percent higher. This morning, serendipitously, that call appears to have been right. The reality is that through the end of last week some of the risk measures we track were starting to flash the all clear, but in light of the Ukraine situation, we'll hold the line. It doesn't hurt to wait and watch in the short term.

Key Points:

* 2-10 Spread – Last week the 2-10 spread tightened to 233 bps, -9 bps tighter than a week ago, and the 10-year yield is down a further 4 bps this morning.

* Euribor-OIS Spread – The Euribor-OIS spread tightened by 1 bps to 15 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk.

* CRB Commodity Price Index – The CRB index rose 0.2% last week, ending the week at 302. As compared with the prior month, commodity prices have increased 6.7%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

1. U.S. Financial CDS - Swaps tightened for 24 out of 27 domestic financial institutions. Wells Fargo and Allstate went wrong the way last week, but by a mere +1 bps, and GS was unchanged. Otherwise the US Financials were tighter across the board.

Tightened the most WoW: SLM, AGO, COF

Widened the most WoW: WFC, ALL, GS

Tightened the most WoW: BAC, PRU, AGO

Tightened the least MoM: TRV, AXP, AON

2. European Financial CDS - Aside from a few minor exceptions, European bank swaps were tighter last week, compressing by an average 3 bps (2 bps median decline). The month-over-month change in Europe is more impressive, as much of the Continent's banking system is now seeing double digit M/M declines.

3. Asian Financial CDS - It was another mixed, though largely unexceptional week for Asian financials. Two out of three Indian banks were notably tighter, while in China the Export-Import Bank widened by 11 bps. Across Japan, the only notable mover was Nomura at +11 bps.

4. Sovereign CDS – Sovereign swaps across Europe tightened notably last week, while the rest of the world was largely uneventful with the US and Japan widening just one basis point.

8. CRB Commodity Price Index – The CRB index rose 0.2% last week, ending the week at 302. As compared with the prior month, commodity prices have increased 6.7%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

9. Euribor-OIS Spread – The Euribor-OIS spread tightened by 1 bps to 15 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk.

11. Markit MCDX Index Monitor – Last week spreads tightened -3 bps, ending the week at 73 bps versus 76 bps the prior week. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1.

March 3, 2014

BULLISH TRENDS

BEARISH TRENDS

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COMPANY NEWS

CZR – The company held the inaugural lighting of The Las Vegas High Roller for media and locals on Friday evening. The world's largest observation wheel is the centerpiece of the $550 million Linq located on the Las Vegas Strip. The High Roller is scheduled to be open later this year.

Takeaway: We saw a preview of the High Roller two weeks ago and were impressed its grandeur, brilliantly colored lighting scheme and striking appearance in the Las Vegas skyline. It should be a draw.

INDUSTRY NEWS

Takeaway: So much for worrying about the January "weakness". YTD, GGR grew 24%. We would caution that the math suggests march will show a significant deceleration in growth. April should also look relatively slow.

Secretary for Economy and Finance Francis Tam Pak Yuen said the government would not grant all gaming tables the casino operators have requested for their new resorts in Cotai – at least until 2022. That hands the problem on to someone else, as the former factory boss is expected to retire from his post within 12 months, after serving as economy secretary since the handover from Portuguese administration in 1999. Tam said, “We do not rule out that the projects can get all the tables they have requested – namely 500-700 tables each – 10 years later... As you all know there will be no more land zoned for gaming after the completion [of the resorts] in 2016-17.”

Takeaway: We're not too worried about the table cap. The casinos should get enough tables. Tam's commentary can be read to indicate that annualized growth in tables won't exceed 3% - that doesn't mean that in certain years, the number of table games could increase more than 3%. Limiting new suppply beyond what is planned is a positive.

Saipan Casino Legislation - Gaming legislation was introduced today in Saipan. The proposed legislation allows one casino license holder on Saipan and requires $30 million payment upfront and $15 million every year thereafter until the duration of the license. The license is for 25 years, with the option to extend for another 15 years or a total of 40 years.

Takeaway: Asia gaming expansion good for LVS, WYNN, Genting, and to a lesser extent, MGM and MPEL.

Atlantic City Visitation – The number of visitors to Atlantic City fell in 2013, dropping to 26.7 million visitor trips last year, down 2 percent from the 27.2 million in 2012 - reflecting the eighth straight year of declines in a resort town that depends on tourists and casino gamblers for its livelihood. Atlantic City’s visitor numbers peaked at nearly 35 million in 2005 and have declined every year since then.

Takeaway: While a number of US commercial airlines have announced additional service to AC for beginning later this spring, it's hard to imagine AC posting any meaningful growth in the coming years.

MACRO

Hedgeye remains negative on consumer spending and believes in more inflation. Following a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive.

Takeaway: We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING

The softness in New Durable & Capital Goods Orders extends itself in January. The labor market continues to improve but at a slowing rate.

Durable Goods declined for two consecutive months for the first time since October 2011 as January New Orders declined -1.0% MoM, unable to comp Decembers -5.3% MoM decline

The great 2014 capex resurgence narrative remains in a holding pattern as Core Capex Orders growth retraced Decembers MoM decline but posted its first YoY decline in 10 months.

After last week’s counter-trend move to 4-weeks of steadily deteriorating improvement in the initial claims data, this morning’s data again reflects a deceleration in the rate of improvement in the domestic labor market.

On a seasonally-adjusted basis, initial jobless claims rose 14k to 348k from 334k WoW, as the prior week's number was unrevised lower by 2K. Meanwhile, the 4-week rolling average of seasonally-adjusted claims was flat WoW at 338K.

Takeaway: Macro teaming up with demographics and bad weather as headwinds against US gaming.

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03/03/14 08:11 AM EST

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 3, 2014

As we look at today's setup for the S&P 500, the range is 36 points or 1.85% downside to 1825 and 0.08% upside to 1861.

SECTOR PERFORMANCE

EQUITY SENTIMENT:

CREDIT/ECONOMIC MARKET LOOK:

YIELD CURVE: 2.30 from 2.33

VIX closed at 14 1 day percent change of -0.28%

MACRO DATA POINTS (Bloomberg Estimates):

8:30am: Personal Income, Jan., est. 0.2% (prior 0.0%)

8:30am: Personal Spending, Jan., est. 0.1% (prior 0.4%)

8:58am: Markit U.S. PMI Final, Feb., est. 56.7

10am: ISM Manufacturing, Feb., est. 52 (prior 51.3)

10am: Construction Spending m/m, Jan., est. -0.5% (prior 0.1%)

GOVERNMENT:

U.S. government to close D.C. offices on weather. Events may be delayed or postponed.

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